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Income Tax Appellate Tribunal, MUMBAI BENCHES “H”, MUMBAI
Before: SHRI JOGINDER SINGH & SHRI ASHWANI TANEJA
O R D E R Per ASHWANI TANEJA, AM
These appeals have been filed by the same assessee against the orders of Commissioner of Income-tax (Appeals) [hereinafter called CIT(A)] for assessment years 20078-08 & 2008-09 against the assessment order dt 28-3- 2013 passed by the AO u/s 143(3) r.w.s. 153C of the Act. The issue involved in these appeals is identical, therefore, these appeals were heard together and are disposed of by this common order.
The solitary ground raised in this appeal is with regard to disallowance u/s 14A. The main argument of the Ld. Counsel is that in this case, the impugned assessments have been framed u/s 153C, as a result of search operation u/s 132 carried out on Patel Engg group of companies on 11-04- 2007. It was submitted that in this case original returns were filed u/s 139(1) which were accepted by the revenue and attained finality before receipt of notice 153C. Thus, the assessment for these two years did not abate. Under these circumstances, no disallowance or addition could have been made by AO in absence of any incriminating material having been found during the course of search. The AO made disallowance u/s 14A which was not connected to any incriminating material found during the course of search and thus, the disallowance was illegal and without jurisdiction. The Ld. Counsel also relied upon the decision of the Tribunal in the case of wife of the assessee, viz. Mrs. Babita Malkani and copy of order was placed before us wherein the Tribunal had deleted the disallowance on identical facts and circumstances.
During the course of hearing Ld. DR relied upon the orders of the lower authorities.
We have gone through the orders of lower authorities and also the copy of order of the Tribunal placed before us by the Ld. Counsel. It is noted that undisputedly, no incriminating material was found with regard to the impugned disallowance made u/s 14A. It is further noted that in the identical facts & circumstances, this issue came up before the Tribunal in the case of wife of the assessee, Mr. Babita Malkani, in 3348, 3349 & 3350/Mum/2015 and vide order dated 30-11-2015, the Tribunal decided this issue in favour of the assessee with following observations:
“9. As the aforesaid discussion shows, the pertinent point raised by the assessee before me is that the impugned addition has been made in the absence of requisite jurisdiction. The impugned assessment has been made by invoking Section 153C of the Act, which prescribes that the assessment is to be made "in the manner provided in Section 153A of the Act. In order to appreciate the controversy, it is pertinent to observe that Section 153A of the Act postulates the assessment in cases of search or requisition under section 132 or under section 132A of the Act respectively. The said section envisages that the Assessing Officer shall assess or reassess the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search was conducted. The second proviso to section 153A(1) of the Act also prescribes that assessment or re-assessment, if any, relating to any assessment year falling within the period of six years referred to in sub-section(1) of section 153A of the Act, which is pending on the date of initiation of search or making of requisition as the case may be, shall abate. In other words, in so far as the pending assessments are concerned, the competence of the Assessing Officer to make the original assessment converges with the assessment to be made u/s.153A of the Act, i.e. only one assessment shall be made for such assessment years based on the findings of the search as well as any other material existing or brought on record by the Assessing Officer. Notably, there would assessments in the period of the six assessment years identified in section 153A(1) of the Act, which would have become final (i.e. which are not pending on the date of search); such assessments do not abate in terms of the second proviso to sec.153A(1) of the Act. The scope and ambit of such an assessment is the controversy before me. In this context, it would be pertinent to refer to the judgment of the Hon'ble Bombay High Court in the case of CIT vs. Continental Warehousing Corporation (Nhava-Sheva) 58 Taxmann.Com 78 (Born) wherein the scope of an assessment under section 153A of the Act has been considered. One of the points addressed by the Hon'ble High Court was whether the scope of assessment under section 153A of the Act envisages additions, which are otherwise not based on any incriminating material found during the course of search. As per Hon'ble High Court, no addition could be made in respect of the assessment that had become final in the event no incriminating material was found during the course of search. The Hon'ble High Court also noticed its earlier judgment in the case of Murali Agro-products Ltd. (supra) and elaborately culled out the scope and ambit of the assessment and reassessment of total income under section 153A(1) of the Act read with the proviso thereof, and ruled that an unabated assessment under section 153A(1) would not encompass an addition, if no incriminating material is found during the course of search, because in such a case, the original assessment had become final. This proposition has been canvassed by the Ld. Representative for the assessee before me in order to assail the disallowance of Rs.56,912/- made by the Assessing Officer by invoking section 14A of the Act.
9.1 Moreover, the Hon'ble Delhi High Court in the case of CIT(Central)-ill vs. Kabul Chawla in ITA 707/2014 dated 28/08/2015 has extensively considered the legal position and summarized it in the following words:-
"Summary of the legal position 37. On a conspectus of Section 153A(1) of the Act, read with the proviso thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153A(1) will have to be rnandatorily issued to the person -searched requiring him to file returns for six A Ys immediately preceding the previous year relevant to the AY in which the search takes places. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such A Ys will have to be computed by the AOs as afresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search take place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six A Ys "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post- search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment " can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." of any incriminating material, the completed v. In absence assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search or of documents or undisclosed income or property requisition discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment." 9.2 Factually speaking, in the present case the assessment on the date of search stood completed in as much as the date for issuance of notice under section 143(2) of the Act in relation to return originally filed under section 139(1) on 30/09/2008 had lapsed. I have perused the assessment order and find that there is nothing brought on record to suggest that any material was found during course of search which would trigger the invoking of section 14A of the Act. Rather, the assessment order reveals that the disallowance under section14A of the Act has been resorted to on a mere reappraisal of the existing material and is dehors any incriminating material found in the course of search. The entire discussion on this point in paras-6&7 of the assessment order does not refer to any material found during the course of search, leave alone any incriminating material.
Therefore, in this factual background. I do not find any justification for the Assessing Officer to make the ii*.ned addition in an assessment finalized under section 153A of the Act in the absence of any incriminating material having been found during the course of search, qua the impugned disallowance u/s. 14A of the Act. 9.3 In conclusion, I, therefore, hold that following the ratio of the judgment of the Hon'ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava-Sheva) (supra) as also the judgment of the Hon'ble Delhi High Court in the case of Kabul Chawla (supra), the impugned addition could not have been made in respect of an unabatable assessment which had otherwise become final, in the absence of any incriminating material having not been found in the course of search, qua the impugned disallowance u/s. 14A of the Act. Accordingly, I set aside the order of the CIT(A) and direct the Assessing Officer to delete the addition of Rs.56,917/- as the same is purported to be beyond the scope and ambit of assessment envisaged under section 153A of the Act. Thus, on this aspect, the assessee succeeds.”
It is noted that the facts and circumstances under which the addition has been made in this case before us is identical to that of case of Mrs. Babita Malkani (supra). No distinction whatsoever has been made by the Ld. DR in this regard. It is further noted that the Tribunal has properly analysed the facts of the case and law available on this issue in detailed manner. No contrary judgment has been brought to our notice in this regard. Under these circumstances, respectfully following the order of the Tribunal, it is held that the disallowance made u/s 14A by the Assessing Officer was bad in law in absence of any incriminating material having been found in the course of search qua the said disallowance. Therefore, the appeals of the assessee are allowed and disallowance made by the Assessing Officer for both the years is directed to be deleted.
In the result, appeals are allowed. Order pronounced in the court on this 19th day of Aug., 2016.